Qorvo: A Buy for the Long Run

Qorvo (QRVO) recently posted impressive results for the second quarter of 2016 by surpassing the earnings estimates and delivering a growth 95.3% in revenue from second quarter, 2015.

The revenue for the quarter scaled up by 95.3% to $708 million for the quarter, from $363 million for the same quarter, 2015, driven primarily from the TriQuint revenue and from the rise in demand of RF solutions for mobile products.

Revenue by segment

Mobile Products: Revenue from MP segment which supplies radio frequency solutions for mobile devices tablets and smartphones went up to $578.2 million from $298.4 million for the second quarter, 2015, driven by the highest revenue growth from mobile products of 19% on year-over-year basis.Also, the company is tapping 4G smartphones, which have content of RF of up to $20 compared to $2-$3 of content in generic smartphones.

IDP: Revenue from Infrastructure, defense and aerospace product segment of Qorvo, which provides radio frequency solutions to infrastructure, defense and aerospace markets grew to $129.2 million from $63.5 million for the second quarter, 2015.

Further, by 2020, the company expects compounded annual growth rate of 45%.

All Other: The revenue from other segments that the company deals increased to $970 million from $698 million for the second quarter, 2015.

Moving ahead to expenses, the Non-GAAP research and development expenses of Qorvo scaled up to $106.5 million from $46 million for the second quarter, 2015. The Non-GAAP marketing and selling expenses went up to $28.6 million from $16.4 million for the same period, previous year. The Non-GAAP general and administrative expenses increased to $21.5 million from $10.8 million for the second quarter, 2015.

Furthermore, Qorvo posted Non-GAAP Operating Income of $194.8 million compared to $100 million for the second quarter, previous year. Additionally, the Non-GAAP Gross Margin was 49.7% for the quarter compared to 48% for the second quarter, 2015. The Non-GAAP Net Income for the quarter scaled up to $183.2 million from $89.9 million for the second quarter, 2015.

Qorvo posted Diluted Earnings per share of $1.22 compared to Diluted Earnings per share of $1.21 for the second quarter, 2015.

Product development

The RF Fusion Mobile WI-Fi integrated Front End Module of Qorvo has been selected by LG electronics for its Nexus 5X smartphone. Also, company’s wireless local area network power amplifier module has been selected by NETGEAR for its new Nighthawk Router.

In addition, for enhancing, car-to-infrastructure and car-to-car communication, data exchange and analysis, Qorvo has introduced 801.00p power amplifier.

Further, for accelerating and simplifying the adoption of carrier aggregation in 4G LTE-Advanced devices, Qorvo has introduced four multiplexer solutions.

Cash flow generation is strong

Qorvo generated cash of $310.2 million from operating activities for the six-month ending period, 2016 compared to $95 million for the same period, 2015. The cash outgo from Investing Activities was of $25.5 million for the six-month ending period, 2016 compared to cash used in Investing Activities of $73.4 million for the same period, previous year. The cash used in Financing Activities was of $465.9 million for the six month ending period, 2016 compared to $82.7 million for the same period, 2015.

Conclusion

To wrap up, Qorvo posted impressive results for the second quarter, 2016 by delivering better-than-expected earnings for the quarter, the quarter posted increase in revenue, driven by increase in demand of RF solutions for mobile products, increase in Non-GAAP operating income and Non-GAAP net income. Further, the Non-GAAP Diluted earnings per share increased to $1.22 from $1.21 for the second quarter, 2015.

Looking forward to the third quarter, 2016, the company expects revenue in a range of $720 million-$730 million, gross margin of 50% and Diluted Earnings per share in a range of $1.25-$1.30. Qorvo has a great growth opportunity ahead.